Cannabis Inventory Management Tips to Stay Compliant

May 13, 2020 Cannabis Business, Financial Strategy

Whether you’re stocking hundreds or thousands of cannabis products, cannabis inventory management and bookkeeping is essential for success in the cannabis sector. Operating in this industry means you need to know where your inventory is, how much you have available, and when you’ll need to restock.

According to Wasp Barcode Technologies, 43 percent of small businesses in the United States either are not tracking their inventory, or track it with a manual system. While a manual system could work for some businesses, the cannabis sector’s strict regulations demand operators to eradicate any potential for human error.

Cannabusinesses must track their products on an individual basis to remain compliant. Supply chain issues also raise the need for cannabis inventory management.

In the dynamic cannabis sector, efficient inventory management is a cornerstone of success. Knowing where your products are, their quantities, and when to restock is crucial for compliance and customer satisfaction.

However, with the complexities of this industry and stringent regulations, relying on manual systems is no longer viable. In this comprehensive guide, we explore essential tips and strategies for seamless cannabis inventory management while sharing real-world success stories that demonstrate the power of these techniques.

1. Embrace FIFO (First In, First Out) Inventory Accounting

The FIFO principle, widely adopted in food production safety, is equally relevant in the cannabis world. Implementing FIFO ensures you sell products in the order they arrived, preventing expired stock and potential compliance issues.

Let’s follow the five simple steps for effective FIFO implementation:

  • Identify products with the earliest use-by, expiration, or best-before dates.
  • Remove damaged or expired items from your inventory.
  • Place your oldest but still viable products at the front of shelves.
  • Arrange newer stock behind older ones, with the most recent dates at the back.
  • Sell products from the front of shelves first, prioritizing those expiring soonest.

2. Leverage Inventory Management Software

Inventory compliance in cannabis is crucial, and when you have Point of Sale (POS) and inventory management software in place, you’re handling inventory management like a professional.

Between the projections, reconciliations, and regular inventory audits a cannabis POS system facilitates, these systems are essential for every cannabis business operator that handles inventory. However, the right inventory management software will integrate with the government’s reporting system and make automated compliance reporting simple.

An inventory management system also reduces human error. The data-related features such as automated product equivalency, purchase limit calculations, product recall management, and batch tracking encourage data-backed decisions that increase your efficiency and help you avoid compliance infractions.

3. Harness Customer Data

Unearth valuable insights by analyzing customer data, optimizing your inventory management, and meeting consumer demands effectively. Utilizing the right data allows you to gauge demand, make informed ordering decisions, and set competitive margins to foster business growth.

Overstocking is a problem. However, you also need to store enough inventory to provide your customers with products, regardless of whether you’re experiencing a peak in sales.

Efficient data utilization streamlines inventory processes and positions your business to capitalize on emerging opportunities. You’ll understand what your customers want, how much you should order, and what margins will encourage your business’s growth.

By effectively using this data to streamline your inventory management processes, you’re also positioning your business to make the most of any opportunities you uncover during your operations.

Real-World Case Study Example: Cannabis Dispensary X

Cannabis Dispensary X faced inventory management challenges leading to frequent overstocking and a potential loss of sales. By analyzing customer data, they identified peak demand periods and adjusted their inventory levels accordingly.

Implementing a robust inventory management system, the dispensary minimized human error and improved compliance. Consequently, the dispensary saw a 30% increase in customer satisfaction and a 20% rise in sales within six months. This is what’s possible with inventory management that’s guided by customer data.

4. Standardize In-house Inventory Audits

While your software will provide accurate reporting for compliance, you’ll still need to standardize your in-house inventory audit process. This information will help your business recover lost sales, make better ordering decisions, and catch internal thefts and frauds with ease.

Inventory-related compliance infractions can result in a full state audit. By establishing your SOPs for in-house inventory audits and performing a full audit of all inventory weekly, you’ll increase your chance of dodging a state audit.

Some cannabusiness operators use cycle counting to audit their entire inventory each month. This is easier than counting all inventory at once, and it’s just as effective. To complete accurate inventory counts by cycle counting, you’ll count portions of your inventory at scheduled intervals throughout the month until you’ve analyzed your entire stock.

Daily inventory reports are also ideal. While it’s challenging to maintain inventory audits, conducting a minimum of an audit per week is an excellent way to reduce fraud and theft. Just make sure the person counting your inventory is not also handling your cash.

5. Combat Employee Theft

While you’ll need to show your business is secure for your application, it’s also important to consider how much product you’re handling each month. Simply put, it’s easy for products to go ‘missing’ when there’s so much temptation for dishonesty.

According to the Marijuana Retail Report, “up to 90% of losses reported by dispensaries are due to employee theft.” This is why incorporating strict protocols to secure your inventory is so crucial.

These are some of the best options available to keep cannabis inventory secure:

  1. Conduct thorough background checks during the hiring process.
  2. Create limited access areas for inventory stock.
  3. Require employee identification to get into and out of these limited access areas.
  4. Keep a record of all staff coming in and out of inventory areas to prevent fraud.
  5. Use alarms, video surveillance, and lighting to discourage theft.
  6. Hire security to watch for inconsistencies in staff and customer behavior.

6. Optimal Storage for Product Freshness

Successfully managing cannabis inventory involves organization. This is why some cannabis business operators hire an inventory manager responsible for inventory maintenance.

Your inventory storage space should not be full of clutter. Instead, it should be well-organized and ready to pass an inspection at any time.

Store your products appropriately to ensure they last. This can mean air-tight containers for extracts and flower, refrigeration for perishable edibles, and temperature-controlled climates to keep all products as fresh as possible.

The inventory storage space should also be secure. Use your state’s regulations to guide you as you secure your inventory. While this will keep your business compliant, you’ll also effectively protect your inventory from unexpected discrepancies.


Mastering cannabis inventory management is pivotal for success in the ever-evolving cannabis sector. By implementing FIFO principles, utilizing advanced inventory management software, analyzing customer data, standardizing audits, preventing theft, and optimizing storage, businesses can streamline operations and ensure compliance.

Real-world case studies demonstrate the tangible benefits of these strategies. Embrace these actionable tips to elevate your cannabis inventory management and take your business to new heights of success.

For personalized recommendations and expert assistance in inventory management, software, and compliance, contact us today!